The Pre-Mortem
In his new book, The Power of Regret, Daniel Pink argues that regret is not a negative emotion we should seek to avoid, but rather a positive one. It is regret that allows us to examine our mistakes and learn from them, so we don’t repeat them over and over. But what if you could take it one step further and learn from your mistakes before you even make them? At Truss, we have been working to learn from potential mistakes before we make them through a process called pre-mortem.
Pioneered by Gary Klein in 2007, the pre-mortem was designed to reduce the frequency of failure and is based on a psychological principle called a counterfactual, which asks how you can imagine something that has not yet happened and, further, how you can draw use from that imagined future. In contrast to the post-mortem, which examines the outcome of an initiative once it is over, the pre-mortem also focuses on a specific initiative, but ideally before it begins or in its early stages. Here is what it looks like.
As you prepare to launch a project, you assemble your team. You tell them, “I want you to imagine six months into the future. The project has launched, we are well into it…and it’s been a complete failure. Our colleagues, customers, and partners are all angry or disappointed, and we are embarrassed”
Pause. Let that sink in.
Then you ask, “What happened?”
Usually when I first launch this question into a room, I am met with silence. We aren’t used to being asked to express vivid failure, and there’s often a bias for keeping our doubts silent. As a leader, I often start myself; I imagine a failure that is grounded in my own error or oversight. When the team sees that the potential problems could implicate even the CEO, they become more willing to play along. A good practice is to have everyone write their thoughts down first. This has the advantage of ensuring that your team members are sharing independent, diverse perspectives. Eventually, your team starts sharing: we took a risk on pricing and didn’t react quickly enough when we needed to adjust; we didn’t execute our media strategy properly; our competitor came out with a better product right after we launched. We encourage team members to share potential failures grounded in both internal and external factors, and we get it all on the table.
Sometimes the ideas get ridiculous, but even those are important – having a laugh can reduce the hidden anxieties of the team in a safe way. The goal is to get as wide a variety of possibilities as possible, and ideas that come from each person’s specific area of expertise. It can get quite lively once you get going, and you start to realize areas where you need to protect the project in a way you hadn’t previously imagined. Then, as a team, we look at all the ideas we have generated, organize the fixes for the mistakes we haven’t made yet but might make, and set about implementing them. Now your team has action items, they have learned from each other’s perspectives, and they have the time and the clarity to work to mitigate the bad outcomes you have imagined. The subtle but crucial key is for the team to invest in imagining a vivid outcome of failure. By doing this, they will usually uncover new obstacles that they can fix together. It is remarkably effective.
One concrete example of a time when we used this at Truss was back in 2017, when we were considering making salaries internally transparent. We were interested in improving equity and thought this would be an effective way to do that. Before we made the decision, we did a pre-mortem. We asked ourselves, what could go wrong here? Well, people could dislike it so much that they would leave the company. That would be a terrible outcome. How do we mitigate the risk of that happening? To solve for this, we decided to find out ahead of time how people felt about it. Simple, but we hadn’t planned it initially. We polled our employees, asking them if, hypothetically, they would be for or against this move. We learned that most were for it, and we learned what the specific concerns of those who weren’t sure were. We were able to fix those issues before we made the shift and, importantly, before they became big problems.
Another way you might use the pre-mortem is directly with your clients. It requires a great deal of trust so I might recommend that you have a few cycles of project execution, postmortems, and addressing issues first. This establishes the practice that postmortems are about learning, not blaming, and following through with actions tends to increase trust. As you build trust, you can introduce the pre-mortem before the next initiative. When we do this with clients, they initially can’t believe that we are willing to consider that we might make a mistake. But then they start sharing things that they are worried about that we might never otherwise have known. The practice of pre-mortems has been an incredibly useful practice for building client trust, mitigating risk, and planning successful projects.
I use this process in my personal life as well, such as when I chose between grad schools. When I have a big decision to make – especially when I am deciding between two great choices– I created the habit of writing myself a letter. In the letter, I imagine I have chosen either option A or B, and I am several months into my life post-decision. The crucial step is to write out in vivid detail what that future life in choice A looks like: where I’m located, who I interact with, how I feel, even the sights and sounds. One of two things usually happens. Either I know within a couple paragraphs that choice A is wrong, or I get excited by my description of the future. Then I put the letter in an envelope, put it on my mantle, and open it again six months later (yes, I’m old school, you can do it electronically and set a reminder). At that point, I am well into the reality of life post-decision and I can compare the two versions. It allows me a window back into my thinking when I made the decision, and the opportunity to re-evaluate my choice. Often, it turns out to have been the right choice, but sometimes it doesn’t. By reminding myself of my original intention, I can correct course, move forward, and re-evaluate how I made the decision, given the information available. This sometimes is the most powerful part of the practice of using counterfactuals to make better decisions.
This is a quick overview of a complex process that is highly Evergreen®, because it empowers all team members to contribute, in a risk-free environment, to problem solving and troubleshooting. It can influence how you make decisions, what level of trust you enjoy within your team and with your clients, and even how you think about future endeavors.
There is obviously no way to clearly see what really does lie ahead, but the learning that can come from this peek into the future is profound, meaningful, and actionable. We get the benefit of learning from mistakes that Daniel Pink advises us to embrace, but we get to do it ahead of time, when there is still time for our learning to influence the present. It’s the best of both worlds.
Everett Harper is CEO & Co-Founder of Truss and author of Move to the Edge, Declare it Center, where you read more on practices like the pre-mortem.
*photo credit: Asa Mathat
Evergreen Strategies to Scale through Organic Growth, New Industry Verticals, & Acquisitions
Tugboat Institute® member and President of Supportworks, Inc., Dave Thrasher grew up watching his father found and build a company. When it came time for him to step into leadership, Dave was ready to take what his father had built and scale it. In the end, he founded his own offshoot of his father’s Evergreen® company, which is run today by his brother Dan, and he started the work of scaling Suportworks, Inc., always with an eye to maintaining his core Evergreen values.
In this Tugboat Institute talk, Dave shares his learning about the ways Evergreen companies can scale successfully. Many of them are the strategies used widely by companies of all types, but he has modified where necessary to ensure that as he scales, his growing company stays fully aligned with the Evergreen 7Ps® principles and the Evergreen mindset. He has had astounding success.
Watch and be inspired to explore new growth opportunities in an Evergreen way.
Lessons in Leadership I Learned from my Baseball Coach
One of the most effective tools I’ve learned in the many leadership trainings I’ve done over the years is the importance of journaling. Journaling creates the time and space to pause, step back, reflect, and gain insight. Out of the practice of journaling, I’ve come to many important realizations and gained many significant insights. One of them is this; I learned some of my most important lessons in leadership from my high school baseball coach.
I remember one time early in my career, we were in a close game and I got a chance to come in. The bases were loaded with two outs, and I got to pinch hit. I came in and I hit a double in a gap to the fence. I cleared the bases, and I stopped at second base, eyes fixed on my teammate who had started at first base. I held my breath, hoping he would slide into home plate and score. He did! We scored three runs, and I was excited. My coach called time out from where he was coaching at third base, and he called me over
Coach Gene Schultz was never an emotional person, so you never really knew what he was going to say. I got over there, expecting maybe a pat on the back, but he made no comment about the double, didn’t say “good job.” Instead, he asked me, "Where should you be right now?" That was it. I said, "You tell me." To which he replied, "You should be standing right next to me here at third base. You got caught up in the drama and watching the play, but you should be right here." I had failed to follow his most important golden rule: We over Me. My mental percentage dropped.
In the small town in Iowa where I grew up, baseball was it. Everybody played, including me. Our high school was small, but we just happened to have a great baseball team; we won numerous state titles over the years and made a real name for ourselves. We didn’t send a lot of players to play college ball, and we didn’t send any to the Major League that I am aware of, but before, during, and long after my time on the team, we were great. The reason was clear; for 45 years, our team was coached by Gene Schultz. To this day, Coach Schultz is the winningest high school baseball coach in the nation.
Coach Schultz played baseball in college and then came straight to our high school, where he stayed for his whole career. He was not like other high school baseball coaches at the time. Like all the others, he was a fanatic for stats. He kept stats on all the things you would expect: batting average, on base percentage, stealing percentage, balls, strikes, wins, losses, etc. But he spent most of his time tracking different stats, which he called Mental Statistics. They revealed what he considered to be the most important part of the game: where was your head during any given play? If it wasn’t in the right place, you were not contributing your best to your team.
Here are a few examples of things he kept stats on. If you're an outfielder, did you throw the ball to the right place? When you threw it back in, did you hit the cutoff person? Did you throw it to a base? If you're playing center field and the ball is hit to right field, did you go back up your partner, or did you just stay in your space? The list was long. He used them to calculate what he called mental percentages. Ultimately, there's only one right action in every scenario; what percentage of the time did you see it, and did you do it?
As I’ve reflected on the lessons I learned from Coach Schultz back in high school, I can see two main reasons for his great success: attention to detail, and the “we over me” mindset.
The mental stats are a great example of his extreme attention to detail. To help us improve our mental percentage, he relied on repetition. We basically had the same two-hour practice over and over for all the years I played for him. Our focus was always the same: practice plays and then consider; did you have a plan for what you were going to do if the ball was hit here or if it was hit there? Were you thinking ahead instead of reacting in the moment? Were you aware of where people were on base? Our consistent and intense focus on this, over and over, helped us get better and helped us win.
The “we over me” mindset perhaps explains why, despite his incredible number of wins, Coach Schultz did not produce a bunch of great, professional ball players. He wasn’t coaching players, he was coaching teams. On his team, there was no room for ego and no room for individualism.
In business, all of this translates to a mindset as well as specific behaviors. Attention to detail and “we over me” sit at the foundation of both. At World Class Industries, I measure for accountability, but mostly I measure for improvement. There is always learning going on, and the attention to detail helps me capture and apply that learning. As for “we over me,” this takes us right back to Stephen Covey. If you think back to The Seven Habits of Highly Effective People, you will recall that one of them is creating win-win scenarios. If you are winning because someone else is losing, or if you’re looking good because somebody else is looking bad, that is not a sustainable approach to winning.
As a People First, Evergreen® company, in it for the long haul and aiming to last 100 years or more, the short wins and the individual wins just won’t cut it. Gene Schultz coached us to win, but we had to win the right way. As a team.
In Search of Excellence and Beyond
Tom Peters’ book, In Search of Excellence, stands as one of the seminal management books of all time. It had an enormous influence on Tugboat Institute® Founder and CEO Dave Whorton as a young man, as it did on so many others. Its foundation in People First aligns beautifully with the Evergreen® mindset, and offers great wisdom for the Evergreen leader.
In this Tugboat Institute talk, Tom engages in conversation with Dave Whorton and revisits the eight main points he detailed in his original book. Then they discuss some ways in which Tom’s thinking has evolved in the years since it was published. Still as relevant and Evergreen as ever, the takeaways from this rich conversation are numerous and valuable.
Watch and enjoy the wisdom and wit of this great leader and thinker.
Why We Hired a People and Culture Leader, not a Director of Human Resources
Conventional business wisdom tells you that when your company grows to about 100 employees, it’s time to hire a full-time Human Resources Director. At Biohabitats, we are not quite there, but we began to feel the growing pains of not having someone dedicated full time to HR about two years ago. With eight bioregion offices scattered across the US and work throughout the world, the need to have someone solely dedicated to our team members’ well-being became paramount. As we began thinking about this position, we wanted to be sure it both reflected and reinforced our culture, and we couldn’t come to terms with the label ‘Human Resources Director.’
Traditionally, Human Resources is a management position. It is about making sure you are meeting the legal requirements you need to meet as a company, managing employee benefit programs, supporting your onboarding and offboarding processes, and resolving conflicts. Of course, we need to do all these things, but staying on the right side of legal requirements seemed like a low bar; we thought we could do better.
In our minds, humans aren’t resources, rather they are people striving for fulfilling, healthy, and secure lives within and outside work. For us, ‘People and Culture Leader’ seemed better; it both characterizes the roles and responsibilities of the position, while at the same time reinforcing our culture, identity, and purpose. You can say it’s semantics, and that it’s basically another name for the same position, but I would argue that language matters.
At Biohabitats, we restore ecosystems, conserve habitats, and support the regeneration of the natural systems that sustain life on Earth. We focus on managing projects and processes, not people. As a learning organization whose culture is underpinned by a belief in ecological democracy (the rights of Nature), we take our cues from Nature when it comes to organizational structure and relationships. For us, it’s about enabling our team members to fully express themselves, bringing energy, passion, and creativity to their work.
Our structure is based on three overarching principles: self-management, wholeness, and evolutionary purpose. With self-management, for example, our team members have high autonomy. They are accountable to themselves, their fellow team members, their clients, and to the Earth and all non-human beings. As we conceived of this new position, we wanted to focus foremost on cultivating our culture, nurturing team member aspirations, and fostering wholeness. We needed to be clear about what we value and what we want to achieve as an organization.
Our People and Culture Leader has been in place for a year now. People often ask if we notice a shift since Katherine started. The answer is a resounding yes. At a base level, we have doubled-down to make sure that Biohabitats operates from a Purpose driven, People First perspective by weaving our values, mission, purpose and the needs of our team into our daily practices. As an example, with one dedicated person, we are now better positioned to translate what it means to be a B-Corps and 1% for the Planet member into our daily operations.
Another great example is the creation of our Headwaters document. We recently revamped our policy manual and created, instead, a document focused around the tenets of self-management, wholeness and evolutionary purpose, and grounded in our values. In nature, the headwaters of a watershed is where many ecological processes begin their journey toward estuaries and the ocean. In a nod to this, we named our document Headwaters: A Guide to Biohabitats Benefits, Policies and Cultural Practices. The focus is not rules and regulations, but rather culture and people. In this guide we not only articulate our five Core Values, which include Revere Wild Nature, Heal Compassionately, Practice Wholeness, Act with Uncompromising Integrity, and Evolve to be the Best, but we have carefully organized all our benefits and policies to support these values. Ultimately, Headwaters serves more as an expression of the heights to which we aspire to rise, rather than the minimum depth under which we will not sink.
Further, we’ve been able to take many of the general things we do as part of running a business and lift them to a level that honors our focus on culture. For example, as part of our open book policy, we routinely hold quarterly meetings with the entire team to review our financial performance from the preceding quarter. Now that our People and Culture Leader is leading the effort, it has become so much more than simply a financial performance review. We now weave in our social and environmental impact performance, our DEI work, and other initiatives that directly speak to Biohabitats’ culture and values. In keeping with the theme of a watershed as a metaphor, our quarterly review meeting has been repurposed as our Quarterly Confluence.
In short, having someone in the People and Culture Leader position has given us one, clear person who we know is always keeping an eye on all aspects of our operations through the lens of our culture and our values. We have become more consistent in the way we communicate with each other and in the way we connect with our clients and stakeholders. Our internal culture has always been strong and grounded in deeply shared beliefs, but now we have someone making sure that we are consistent across all our work, our conversations, our locations, and our messaging.
Importantly, we are preparing for a leadership and ownership transition at Biohabitats, as I prepare to step down as CEO in the coming years. Like Patagonia, Biohabitats will be transitioning to a Perpetual Purpose Trust, further reinforcing our commitment to our mission of Restoring the Earth and Inspiring Ecological Stewardship. As we move through this transition, I am relying heavily on our People and Culture Leader to help us think through that process and ensure that our plans and decisions stay true to our mission, values, and purpose.
As to whether or not hiring a People and Culture Leader instead of an HR Director is the right move for your business, you will have to evaluate against your own culture and beliefs. But I believe that any Evergreen® business, with a commitment to leading with Purpose and putting People (and, for us, Planet) First, would be a strong candidate. ‘People and Culture’ and ‘Human Resources’ are not the same thing. Language matters. It’s an important first step in communicating how you think about and value your team and the culture you wish to create and nurture in your business.
Dear White Friend: How Are We Doing, One Year Later?
At Tugboat Institute® Summit, 2021, member and CEO of TriVersity Construction Mel Gravely took to the stage and spoke about his recent book, Dear White Friend: The Realities of Race, the Power of Relationships, and Our Path to Equity. His 2021 talk was powerful and impactful. This important conversation is one that continues to be relevant across the country, in all areas of our lives, including our businesses. So we asked Mel to speak again in 2022 and give us an update on his thinking and the progress of the conversation on a broad scale.
In this short talk, Mel shares his key learnings from the past year and the factors that he believes must be at the front of all of our minds when we recommit, as we must, to this effort. Only together, and with renewed commitment, can we work toward making our businesses, our communities, and this country an equitable place for all.
Watch and be inspired to commit yourself to this effort, for both the short and long term.
Tugboat Institute @O.C. Tanner: Let's Get a Little Better Every Day
O.C. Tanner was founded on the twin pillars of beauty and kindness, and both were abundantly in evidence last week at Tugboat Institute® @O.C. Tanner, in Salt Lake City. With nearly 100 Evergreen® CEOs gathered in person, and more joining us virtually, O.C. Tanner CEO Dave Petersen and his executive team invited us in for a close look at their extraordinary Evergreen company. It was a wonderful three days of learning, connection, and celebration.
An exemplar of all things Evergreen, but none more than People First, O.C. Tanner was an exceptional host. People First is not only the foundation of their culture and philosophy, but it is also literally their business.
O.C. Tanner was founded in 1927 by Obert Clark (O.C.) Tanner. A philosophy professor at the University of Utah, Obert believed deeply in the dignity and worth of people. The importance of employee recognition and celebration was far from a commonly accepted notion at the time, but Obert intuited its value and became an early champion, both in practice and by trade.
Obert got his start selling seminary graduation pins and class rings, part-time, working out of the back of his car. In its first 43 years, his company grew from $0 to $12M in revenues, making rings, celebratory pins and, eventually, employee service awards. Guided by his dedication to beauty and kindness as well as his commitment to creating a superior product, O.C. developed the motto that is still often repeated today; “let’s get a little better every day.”
For the next 30 years, the company evolved and grew, creating new service awards programs and extending their offerings to include recognition awards. During this time the company expanded significantly, in terms of revenue, products and services, and number of employees.
The past 20 years, under Dave Petersen’s leadership as President and then CEO, have marked the greatest period of innovation the company has known thus far, first by making the significant shift from being primarily a manufacturing company to becoming a leading software solutions company. They also built a state-of-the-art, automated distribution center to deliver complex product combinations right to the desk of the customer manager and, importantly, they created the O.C. Tanner Institute to advance the understanding of People First recognition and awards.
Today, O.C. Tanner serves over one thousand clients across 180 countries and delivers 5.3 million awards annually from offices in Salt Lake City, Canada, England, Singapore, Australia, and India. The company has been recognized as one of Fortune’s 100 Best Places to Work and was awarded the Shingo Prize for Excellence in Manufacturing. In spite of this enormous growth and innovation, O.C. Tanner remains a company and a community that is defined by the spirit and values of its founder, putting People First, pursuing beauty and kindness in all things, and staying private forever.
Our week of learning kicked off with a celebration on Tuesday evening, and on Wednesday morning, we dove into two days of workshops and presentations on-site at O.C. Tanner’s incredible Salt Lake City campus. Dave Whorton and Dave Petersen opened the two days with a Fireside Chat, in which they visited the history of the company, Dave Petersen’s personal journey to leadership, and how the Evergreen 7Ps® come to life at O.C. Tanner. Through the rest of the day and all of the following day, we were able to visit with and learn from key O.C. Tanner executives, who presented on topics ranging from Strategy Evolution, to Community Impact, to Corporate Governance, to the People First culture of O.C. Tanner. We also spent time with the Director of the O.C. Tanner Institute, who shared insights about the importance of culture to employee engagement and fulfillment, something that is critical to all Evergreen companies. Finally, we spent time each day in workshops, talking and thinking about some of the big issues we all face, including building thriving cultures in our organizations and planning for the future.
As unique, powerful, and important as it is, the value of gathering our tribe is not limited to the learning we all share when we come together. From the first evening, the energy and excitement at reconnecting with friends and peers was palpable. To honor the importance of these connections and friendships, in the evenings we celebrated our special community with two fantastic dinners, one of which was held at the Utah Olympic Park.
Standing at the top of the Olympic ski jump, many of us were humbled, struck by the courage, optimism, hard work, and tenacity it takes to become an Olympic athlete. A great many dream of it, some try for it, and only a few, extremely talented and dedicated individuals are able to make it a reality. In some ways, the same could be said of the Evergreen CEO; it is not an easy path, but when grounded in a deep belief in purpose, a willingness to work hard and stay in it for the long haul, and a steadfast dedication to making the world a better place, it can become a reality.
From Founder to G2: Two Distinct Mindsets
It takes a certain set of qualities to start a company and make it successful. It takes vision, grit, passion, and a willingness to take risks and put it all on the line. Yet, in order for a new business to settle into a place where it can become a true Evergreen® company and last for 100 years or more, a shift must eventually take place. This often occurs when leadership transitions, from Founder to successor, and it can be tricky. The bottom line is that a founder’s mentality is necessarily different from a second generation (G2) leader’s mentality. It has to be. So how does one make this transition as smooth as possible?
I am the G2 leader of Southway Builders. In some ways, my story is similar to a typical G2 leader in a family business, in that I was present from the very early days of the company, and I became the founder’s exit strategy early in my career with Southway. But at the same time, I am not a family member and so I have the intellectual and emotional distance that a son or a grandson might not have. In my story, therefore, I think there are learnings that can apply to many businesses, family or not.
The first significant difference between a founder and a successful G2 leader lies in the vision for the company. Southway’s founder, when he started the company in 1991, envisioned a solo operation that would allow him to enjoy the independence of working for himself. It quickly became clear that the company he was building not only could become bigger, but it would have to grow to stay alive in the industry.
At Southway, we are construction managers. We do not self-perform any of the construction trades, rather we plan and manage large construction projects. To stay relevant and compete in the Baltimore regional market, the founder quickly realized that he could not do it alone, so he brought me on board in 1993 as a Superintendent; I was employee #1. Although my beginnings were humble, I grew with the company, eventually transitioning into greater leadership roles. From the beginning I was interested in a stable career, supporting my growing family, and eventually having an ownership stake in the business. My goals were defined by opportunity, not limits. While I cannot say that my vision for Southway has been the same since day one, I’ve always been generally more interested in a bigger future for it than the founder.
Another significant difference was my orientation toward growth, both for myself and for the company. The founder of the company found his joy in estimating work, so as we grew, he never stopped doing that work, engaging in the other leadership aspects of the business when he had to. He loved working in the business, and that work gave him a good sense of self-worth. For me, this was an important learning opportunity, but it also led me to realize how much I had to learn. Therefore, once I had sat in most of the seats in the business, I began to look for opportunities to grow myself as a leader.
When I became President and majority owner in 2016, I took three steps that were significant in my growth as a leader. The first was reading Pat Lencioni’s The Advantage, which then led me to engage the Table Group (Lencioni’s business consulting group) to work with our team. By this time, we had grown to just over 50 employees, and it was clear to me that we – and I – needed more strategy to move us forward in a meaningful way. I was stressed and reading The Advantage helped me understand the source of my anxiety; it allowed me to see a path towards a more controlled future and grow as a leader. I started thinking in terms of processes, team dynamics, and systems instead of specific tasks, and we started working to build a healthy business. This was my first significant step away from the founder’s mentality and toward developing my own view for what the company could be.
Next, I engaged a leadership coach. Very soon after taking the reins, I was overcome by Imposter Syndrome, wondering who was asleep at the wheel, letting me take charge. I cannot overstate how important my coach was in helping me discover the best and most authentic leader within myself, giving me the gift of more purpose and clarity in my life.
For the last step, after my first year as President, I found myself wishing I could talk about some of the challenges I was facing with peers. I spent a year seeking out and creating a small group of construction peers whose companies were very similar in size and product type to Southway, but who worked in non-competing geographic markets. Coming together with these leaders was like catching lightening in a bottle for all of us; we are still extremely close, meet regularly, and rely on each other a great deal. The benefits were so apparent to each of us, that we opened our group to the senior levels of management in our companies. Now all four companies’ CFO’s, HR Directors, Operations heads, etc. get together on a regular basis to help and learn from one another.
All of this led me to what I would say is the last and perhaps most important difference between the founder’s relationship with the business and mine, as a G2 leader: a shift from focusing on the short-term, day-to-day concerns of the business to a long-term, big-picture mindset.
As I said, what our founder loved was working in the business, so he never really stopped doing that. He had a great run, but he was clear in explicitly saying, at the time of our transition, that he had no desire to run a larger business. In my early years as President, I was initially stuck in that place of working in the business too, acting more or less as our CFO in addition to my official duties as President. After all, that was the model under which I had learned. My Peer group and coach all challenged me to stop being the CFO, and I reluctantly acquiesced. I finally hired a CFO and that was the last piece in a puzzle that allowed me to lift my gaze up from the immediate. I could finally see with absolute clarity that, for the size of our operation, my work in the business was hindering our ability to function effectively. Soon thereafter, we started work with our leadership team to develop a long-term vision for the company and map out strategies and build platforms from which to grow the company. These steps are refining our systems and processes in a way that will secure a future for Southway Builders that will extend far beyond my own tenure.
I am the luckiest guy in the world because despite the difference between the founder’s vision for the company and the one I developed over time, there was never any tension between us at all. I think this is the point where some G2 leaders can encounter problems, because some founders may be less willing to release the original vision of what the company could become. It’s easy to understand how a founding leader who has grown a good business may believe their methods are the sole recipe for success in moving forward. Fortunately for me, that was never the case at Southway. The founder was extraordinarily graceful in allowing me the leeway to find my own path. He not only accepted, but he also expected my vision, strategy, and leadership to be different than his. And if you are wondering, the founder is still an owner in the company; he is fully retired but will maintain a minority stake for a few more years.
I could not have created Southway, and the founder could not have turned it into the company it is today – an Evergreen industry leader with almost 100 employees and a structure in place to grow thoughtfully and to last for 100 years or more. It needed us both, as does any company that hopes to survive beyond the first generation of leadership.
Helping Others & Enriching Lives: The Power of Vertical Integration
James Avery is a revered and beloved institution in Texas. They have been crafting beautiful and meaningful jewelry for their customers and providing a supportive and engaging work environment for their employees since 1954. As they have grown, they have adhered closely to the Evergreen® values that the founder, James Avery, set as the company’s foundation.
In this Tugboat Institute® talk, CEO John McCullough shares stories from the growth and evolution of this impressive company, as well as the benefits they are able to point to today that have come out of a gradual process of becoming nearly totally vertically integrated. While vertical integration is not without certain costs and limitations, it has allowed the company to be nimble in times of crisis and to gain a level of self-reliance that has protected them, to some degree, from market forces such as supply chain challenges and production shortages.
Watch and learn about the advantages vertical integration can give a company, particularly one that is deeply People First and committed to meeting customer needs in the best way possible.
The First 401(k)
Today, the 401(k) is the standard for retirement savings in American companies of all sizes, industries, and ownership structures. Would it surprise you to learn that this has only been true for about 40 years? The very first 401(k) savings plan was created in 1980 by Ted Benna, an employee at the former parent company of Johnson, Kendall & Johnson (JKJ), the Johnson Companies. Benna’s pioneering plan was and remains one of the most important and wide-ranging People First developments across businesses nationwide.
In the 1980s, the Johnson Companies contained several divisions, the largest of which, Johnson Administrators, administered data for third parties on its considerable computer systems. A smaller division, Johnson Benna, did consulting on retirement plans. They mostly worked on non-qualified executive benefits plans for their clients, many of which were Fortune 500 companies.
As the legendary story goes, Benna was working one weekend, trying to figure out a structure for a client’s top executives to defer taxes on some of their significant cash bonus payments. He stumbled upon a piece of tax code that had existed for a couple years but that was not widely used – it was subsection k of section 401 of the code. 401(k) allowed for the tax-free deferral of dollars today to build income for the future. It did not specify whether the tax-free deferrals were limited to employees or not, nor did it apply to any specific income levels. It was not clear to Benna whether the IRS would allow for it to be used on a large scale, so he put the question to the IRS directly. They agreed with his interpretation and said they would allow it.
Although the code was written for use by high-income employees, Benna realized the opportunity for all employees. He drafted a plan and pitched it to his client, but they decided they were not interested in pioneering something so new and untested. At the risk of seeing it die before it got off the ground, Benna and company founder Ed Johnson decided that the only way they were going to get to test this was to deploy it in their own company, and so the first 401(k) was born.
I did not join the Johnson Companies until 1986, so I was not part of this pilot plan, but we have a woman who still works here at JKJ who was. She’s worked for Johnson since she was 18. Before joining the Johnson Companies, I did have a 401(k), starting in about 1984, which gives you an idea of how quickly this idea caught on and became mainstream.
Ted Benna did not create the 401(k). His genius was in discovering it and realizing its potential. As he pondered its possible usages, he saw that while the appeal might be great for high-income employees, it was going to be a harder sell to lower income workers, who would likely prefer to get all of their salary and bonuses up front. So, he came up with the part that represents his greatest innovation–the addition of employer matching contributions. The prospect of doubling your money as soon as you put it into your account was such an obvious win for employees at all income levels that they signed on in great numbers.
Because it had appeal to all employees in participating companies, all of a sudden, a whole sector of the workforce, who up until this time had put little thought into retirement savings, had cause and a structure to think about planning for their retirement. Aside from pensioned employees, who typically worked for government or state companies or who were union members, they had relied on savings accounts or on family to take care of them in their old age. With the advent and standardization of the 401(k), workers at every level suddenly gained the freedom, security, and dignity to plan for the retirement they wanted instead of scraping by as best they could manage. With life expectancies increasing, this was even more important than it had been in generations past.
The 401(k) has several distinct advantages over the pensions that were the standard before it was created. First, if employees start early, thanks to the employer contributions and the compounding effect over time, they can accumulate significant wealth. Second, the 401(k) has great portability, as compared to a pension. In a world where people change jobs much more frequently than they did in past generations, this is an enormous advantage. Finally, employees do not have to rely on employers to fund pensions; in principle, employers promised to fund them, but volatility, a few bad years, or other market forces could come along and wipe them out, and then employees would be out of luck. The 401(k) gives individuals control over their money and therefore control over their own lives.
The 401(k) is not a perfect tool. Nor did Ted Benna foresee how ubiquitous it would become. His initial intention was not to replace the Defined Benefit system for pensions; he wanted the 401(k) to be a supplement to it, to enhance retirement savings. He always expressed some regret that the 401(k) plans started a trend to replacing Defined Benefit plans versus enhancing them.
Today, the retirement savings landscape continues to evolve. For some small companies, we are learning that certain IRAs might be a better plan. In fact, Ted Benna is still helping companies design plans for their employees to save for retirement, and his current focus is on smaller companies who are often not best served by the plan he developed. But the extent to which Benna’s work revolutionized the way Americans think about saving for retirement has changed the conversation completely. The idea that all employees, and not just the top earners, can and should have the means to build security for their retirement may seem obvious to us today, but it was not at all just 40 years ago.
Here at JKJ we are extremely proud to be part of this history. As an Evergreen® company, when my partners and I bought out our division of the Johnson companies, we doubled down on the Evergreen mindset that Ed Johnson and Ted Benna intuited in so many ways. Our own 401(k) is an important part of how we take care of our employees, alongside our ESOP, through which we offer profit sharing. And we still work on creating and managing employee benefits and 401(k) plans for our clients. We are carrying forward Ted’s legacy and will always put taking care of our people at the center of what we do and who we are.